Big Lots stock battered after surprise loss, as higher gas prices hurt spending Earnings Results

By Tomi Kilgore

Shares of Big Lots Inc. sank Friday, after the discount home essentials retailer reported a surprise fiscal first-quarter loss and a big same-store sales miss, as higher gas prices hurt customer spending.

The company /zigman2/quotes/202923245/composite BIG +1.07% warned that it will “again lose money” in the current quarter as the challenges that led to the disappointing results were expected to continue, but it is taking “aggressive action” to improve results for the second half of the fiscal year.

After a “solid start” in February and March, Chief Executive Bruce Thorn said sales trends “materially slowed” in April, which resulted in a need to increase markdowns.

“We believe the slowdown was caused by the spending pressure our consumers felt from higher gas prices and broader inflation, which is affecting discretionary spending across the retail industry,” Thorn said.

He added that consumer confidence is at a low, real disposable income is declining amid higher inflation and consumer balance sheets have been depleted, as government stimulus recedes into the rearview mirror, according to a FactSet transcript of the post-earnings conference call with analysts.

The stock tumbled 10.2% in midday trading, paring an earlier loss of as much as 16.5% to an intraday low of $25.60.

Big Lots reported before the opening bell a net loss for the quarter to April 30 of $11.1 million, or 39 cents a share, after net income of $94.6 million, or $2.62 a share, in the same period a year ago. The FactSet consensus was for a profit of 95 cents a share.

Sales fell 15.4% to $1.37 billion, below the FactSet consensus of $1.46 billion, while same-stores dropped 17.0% to miss expectations for an 11.4% decline. For the current fiscal second quarter, the company expects same-store sales to be down in the “mid-to-high single digit” percentage range, while current expectations are for a 1.5% decline.

Selling and administrative costs fell much less than sales, slipping just 3.3%, as gross margin contracted to 36.7% from 40.2%.

The company said it expects gross margin to contract further “into the low-30s” as it looks to use markdowns to help clear out excess inventory by the end of the current quarter, which ends July. Then Big Lots targets sequential margin improvement in the third and fourth quarters, as promotional intensity moderates.

“[W]e’re prudently scaling back on store growth this year, as well as other initiatives, while we weather current conditions,” Thorn said.

The company now expects to grow its store count by 30-plus stores in 2022, down from expectations provided in March of 50 stores.

Big Lots stock has plummeted 38.9% year to date, while the SPDR S&P Retail exchange-traded fund /zigman2/quotes/206947004/composite XRT +2.02% has dropped 25.8% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.38% has shed 13.4%.